China's Rural Economy:
Transformation, Challenges and Prospects
Dr Charles C L Kwong
Associate Professor
School of Arts and Social Sciences
The Open University of Hong Kong
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1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.1 Land Reform (1949-52)


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Redistribute 45% of farmland to 60-70% of peasant household
(Eckstein 1977: 68)
Transfer of ownership right from rich peasants to poor and landl
ess peasants (labourers)
1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.1 Land Reform (1949-52)


3
Consolidate support from peasants
Stimulate food production: growth rate of food production
was 16.7%, 8.7% and 14.1% in 1950, 1951 and 1952 respectively
(ZGTJNT 1990: 363)
1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.2 Mutual Aid Teams (MATs) 1950-1954

A programme of producer cooperative

Pooling of land, labour and tools, but remain private property

1954: 58.3% rural households had joined MATs

Agricultural income growth remained slow
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1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.3 Elementary Agricultural Producers’ Cooperatives (EAPCs) 1955

Amalgamation of MATs, consisting about 30 to 50 households

Pooling of land, labour and tools, but remain private property

Distribution according to land and labour share
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1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.3 Elementary Agricultural Producers’ Cooperatives (EAPCs) 1955
Reward was still linked to individual household’s land and
labour supply

1955: 63.3% of rural households had joined EAPCs

Considerable growth in agricultural income in
1955 (8%) and 1956 (4.4%)

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1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.4 Advanced Agricultural Producers’ Cooperatives (AAPCs) 1
955


The Communist Party of China (CPC) felt uncomfortable of
private ownership in the EAPCs. It feared that the rich peasants
might get rich again.
Enlargement of EAPCs to AAPCs, consisting of 200-300
households
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1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.4 Advanced Agricultural Producers’ Cooperatives (AAPCs) 1
955


Private ownership was abolished with no compensation. A small
private plot, not more than 5% of the arable land in the village,
was allowed.
Distribution according to a “fixed point-fixed record” (死分死記)
or “fixed point-flexible evaluation” (死分活記) system
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1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.5 Rural People’s Commune (RPCs)-Great Leap Forward 1958


RPC became the basic organization form in the countryside,
which was a combination of production, government
administration, education and social life.
1957-58: 99.1% of peasant households had joined the RPCs.
Each RPC consisted of about 4500 households.
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1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.5 Rural People’s Commune (RPCs)-Great Leap Forward 1958



1958-1960: centralized system-public ownership and “distribution
according to need” and “distribution according to work”
1961-65: Readjustment Period-decentralization of decision-making
to production brigades and teams
1966-76: Recentralization-“In agriculture learn from Dazhai”
(hign degree of collectivization)
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1. China’s Rural Economy during the Pre-reform
Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.6 Evaluation of Agricultural Collectivization


Disincentive effects of collective farming
Slow growth in agricultural income and consumption
(Table 1 & 2)
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Note: *1952 constant price (last year index
= 100. AII includes income from crop
cultivation, forestry, animal husbandry,
fishery and sideline production.
** 1952 constant price
Source: ZGTJNJ (1984: 454; 1990:35-36)
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1. China’s Rural Economy during the Pre-refor
m Era 1949-1978 : A Brief Overview
1.1 Evolution of China’s Agricultural System
1.1.6 Evaluation of Agricultural Collectivization
 Positive effects of collective farming

Conducive to large construction projects (e.g. irrigation project)

Development of different kinds of cooperatives (e.g. rural credit
cooperatives, supply and marketing cooperatives)
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2. China’s Rural Economic Reform :
1978 onwards
2.1 Agricultural Production Responsibility System


Labour-contract system (Baogong zhi)
Output-contract system (Baochan zhi: Baozhan daozu and
Baochan daohu): certain work points were given to a team
(zu) or individual household (hu)
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2. China’s Rural Economic Reform :
1978 onwards
2.1 Agricultural Production Responsibility System



All-round household contract-output responsibility system
(Baogan daohu)-after fulfilling output quota, households were
free to derive income from the remaining output.
It provided a strong effort-reward link for farmers. In 1984,
99% of households worked under the Baogan daohu.
Rapid rise in household income (Table 3)
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Table 3 Per Capita Annual Net Income of
Rural Households 1980-2008
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Source: ZGTJNJ various issues
2. China’s Rural Economic Reform :
1978 onwards
2.2 Dismantling of Commune System 1985


Reinstituted town and township government
(鄉(鎮)人民政府)
Established village committees (村民委員會)
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2. China’s Rural Economic Reform :
1978 onwards
2.3 Development of Rural Industry (Township-village Enterprises, TVEs)


To absorb surplus labour released from farming resulted from
enhanced efficiency in agriculture (Table 4)
Process the increased agricultural products to produce consumer
goods for the countryside
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2. China’s Rural Economic Reform :
1978 onwards
2.3 Development of Rural Industry (Township-village Enterprises, TVEs)


Local government guaranteed bank loans for TVEs. Growth of rural
industry is one of the important criteria to assess the performance
of local government officials.
Rapid growth from mid-1980s to mid-1990s: TVE contributed 6%
of GDP in 1978 and soared to 26% in 1996 (Naughton 2007: 274)
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Table 4: Workers Employed in TVEs
1985-2002
Source: ZGTJNJ (2003: 448);
Kwong (2007: 398)
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3. Rural Economic Reform:
Bottlenecks and Challenges

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“Three Rural Problems/Issues” (Sannong Wenti:
Nongcun, Nongye, Nongmin) : the core issue is the
sustained income growth and improved livelihood
3. Rural Economic Reform:
Bottlenecks and Challenges
Causes of Sannong Wenti:
Sluggish Growth of Nonfarm Activities

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TVEs growth is constrained by capital shortage due to
1994 banking reform. Local government was not allowed to
guarantee loans for TVEs. About 44,000 branches of state
bank ceased to operate at county level or below in 1998 2002 in order to enhance the efficiency of the state-owned
commercial banks. Labour absorption by TVEs has been
slowed down after the mid-1990s (Table 4 & 5).
3. Rural Economic Reform:
Bottlenecks and Challenges
Causes of Sannong Wenti:
Sluggish Growth of Nonfarm Activities
 Keen competition from state-owned enterprises, which
have more access to bank loans for improving their
product design and quality
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3. Rural Economic Reform:
Bottlenecks and Challenges
Causes of Sannong Wenti:
Unsolved Land Issues

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1994 Tax Assignment Reform (fenshuizhi: Local government
had shouldered a major share of expenditure in public service
in their jurisdiction since 1994. Local governments expropriate
farmland for commercial use, through which derive substantial
fiscal revenue.
3. Rural Economic Reform:
Bottlenecks and Challenges
Causes of Sannong Wenti:
Unsolved Land Issues

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Property rights (i.e. land rights) has not been effectively
enforced.
3. Rural Economic Reform:
Bottlenecks and Challenges
Causes of Sannong Wenti:
Unsolved Land Issues

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A 2005 survey revealed that 63 percent of the farmers
received very brief documentation for their contracted land.
Only about 10 percent of these farmers receive legally
compliant documentation containing the details, such as
names of households, contract duration and land description)
of the contracted farmland (Zhu and Li 2007: 24). Worse still,
the remaining 37 percent of households did not possess any
form of documentation or contract confirming their land use
rights.
3. Rural Economic Reform:
Bottlenecks and Challenges
Causes of Sannong Wenti:
Unsolved Land Issues

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The loose implementation of the Rural Land Contracting Law
(RLCL) largely explains the rampant land expropriations by
local governments with partial and/or delayed compensation.
By 2006, 29 percent of farm households had experienced land
readjustments and expropriations which cut short their 30 year contract (Zhu and Riedinger 2009: 53).
3. Rural Economic Reform:
Bottlenecks and Challenges
Causes of Sannong Wenti:
Unsolved Land Issues

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Loosely enforced property rights on farmland generate two
negative impacts on farmers. First, farmers are reluctant to
make long-term investment in their contracted land which
in turn adversely affected productivity. Second, land
expropriations deprive farmers’ rights to lease their land
to capture the market rental.
4. China’s “New Socialist Countryside”:
More Concrete Policy Initiatives

Since the implementation of the 11th Five Year Programme,
the central government has earmarked increasing funding
for rural development in various dimensions. 339.7 billion
yuan was budgeted in 2006, which was 42.2 billion yuan
more than the figure in 2005, to lift the livelihood in the
countryside.
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4. China’s “New Socialist Countryside”:
More Concrete Policy Initiatives

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Agricultural tax throughout the country has been
eliminated since 2006. The reform of rural taxes and
fees has greatly benefited farmers by eliminating 33.6
billion yuan of agricultural tax and over 70 billion
yuan of various sorts of fees and charges.
4. China’s “New Socialist Countryside”:
More Concrete Policy Initiatives

Starting from 2006, the central government has channeled
over 103 billion yuan annually to ensure the normal
operation of town and township governments and meet the
needs of rural compulsory education. This figure is comprised
of more than 78 billion yuan in transfer payments from the
central government budget and over 25 billion yuan from
local government budgets.
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4. China’s “New Socialist Countryside”:
More Concrete Policy Initiatives

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By the end of 2008, tuition and miscellaneous fees
for all rural students was eliminated. The central
government has budgeted 218.2 billion yuan for
compulsory education over the next five years.
4. China’s “New Socialist Countryside”:
More Concrete Policy Initiatives

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More than 20 billion yuan of central fund has been
spent on renovating hospital buildings in towns and
townships and in some counties and upgrading their
equipment over the next five years.
4. China’s “New Socialist Countryside”:
More Concrete Policy Initiatives

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The central government budget has allocated 4.2 billion
yuan to subsidize the speeding up the establishment of
a new type of rural cooperative medical care system by
extending the scope of current trials to 40 percent of
the counties in China. Under the new scheme, when
farmer contributes 10 yuan a year to his personal
medical care account and a matching fund of another
40 yuan will be added by the government to this account
5. Concluding Remarks
• Rural-urban disparity remains
Table 3 Urban-Rural Income Ratio 2005-2008
Year
2005
2006
2007
2008
Urban-Rural
Income Ratio
3.22
3.27
3.32
3.36
Urban-Rural
Consumption Ratio
3.11
3.07
3.10
3.07
Source: Calculated based on the data from ZGTJNJ 2005, p. 335; ZGTJNJ 2008 (CD-ROM);
China ‘Rural-urban Income Gap Up As Economy Slows,’ CBS News.com
http://www.cbsnews.com/stories/2009/01/16/ap/business/main4726425.shtml (accessed
on 5 Jan 2010); USDA (United States Department of Agriculture) Economic Research
Service Data Set
http://www.ers.usda.gov/data/china/NationalResults.aspx?DataType=1&DataItem=158&St
rDatatype=Rural+per+capita+consumption&ReportType=2
(accessed on 4 Jan 2010)
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5. Concluding Remarks
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The long term solutions to China’s rural problems rest
on effective enforcement of property rights in the and
prompt development of rural financial market.
5. Concluding Remarks

The protection of property rights requires concerted
effort to implement the relevant land laws and regulations,
which calls for a sound and impartial legal system that is
the weakest link in China. The implementation of land law is
also in conflict with the interest of local governments, which
constitutes a force of resistance.
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5. Concluding Remarks
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Regarding the provision of rural financial services,
government initiatives are needed to offer incentives,
such as tax exemption or concessionary land rent, to
motivate local and foreign banks to invest in rural areas,
which is especially important in remote regions.
References
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Eckstein, A. (1977), China’s Economic Revolution, Cambridge
University Press, Cambridge.
Kwong, Charles C L (2007), ‘Where is China's Rural
Economy Heading for: A Brighter Future or Problems
Unsolved?’ in Y. S. Cheng (ed.), Challenges and Policy
Programmes of China’s New Leadership. Hong Kong:
City University of Hong Kong Press, pp. 389-412.
Liu, Pengning (1991), ‘Agricultural Price Reform: Problems
and Suggestions,’ Chinese Economic Studies, Spring Issue.
References
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
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National Bureau of Statistics of China , Zhongguo Tongji
Nianjian (ZGTJNJ, China Statistical Yearbook ), (Beijing:
Zhongguo Tongji Chubanshe), various issues
National Bureau of Statistics of China , Zhongguo Tongji
Nianjian CD-ROM 2009 (ZGTJNJ CD-ROM hereafter, China
Statistical Yearbook 1985), (Beijing: Zhongguo Tongji
Chubanshe)
Naughton, Barry (2007) The Chinese Economy:Transition
and Growth, Cambridge: MIT Press, pp. 379-92.
References
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
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Zhu Keliang and Li Ping (2007), ‘Rural Land Rights under
the PRC Property Law,’ China Law & Practice, November,
pp. 23-26
Zhu Keliang and Riedinger, Jeffrey M. (2009), ‘Rural China’
s Nascent Land Market,’ China Business Review, September
-October, pp. 50-53.
Zhu Keliang, Prosterman, Roy,Ye Jianping, Riedinger,
Jeffrey, and Ouyang Yiwen (2007), ‘The Rural land
Question in China: Analysis and Recommendations
Based on a Seventeen-Province Survey,’ International
Law and Politics,Vol. 38, January, pp. 761-839.
Thank You
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