Easing the transition to More Open Easing the transition to More Open

Economy:Economy:

China's Agricultural and Rural China's Agricultural and Rural

PolicyPolicy

Jikun Huang

Center for Chinese Agricultural PolicyChinese Academy of Sciences

Growth of GDP and Ag GDP (%)

0

1

2

3

4

5

6

7

8

9

10

1979-84 1985-95 1996-00

GDP AgGDP

Per capita rural real income

0

500

1000

1500

2000

2500

1980 1985 1990 1995 2001

Number of population under poverty in China, 1978-2001

(million)

0

50

100

150

200

250

300

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Poverty

Rural poverty incidence in China, 1978-2001(%)

0

5

10

15

20

25

30

35

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

I nci dence (%)

Shares of agricultural and non-agricultural GDP in China, 1970-2001

40

30 27

15

0

10

20

30

40

50

60

70

80

90

1970 1980 1990 2001

Agri cul ture I nd/ Servi ce

Share of non-agri employment of rural labor, 1981-2000 (source: CCAP)

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

Full timeFull time + seasonal

Full time + seasonal + part time

Source (%) of farmer’s income

0

10

20

30

40

50

60

70

80

90

Agri cul ture Non-Agri cul ture

Anti-Poverty Programs

• During 1984-1996: US$ 1-1.5 billion annually

• 1998: US$ 2 billion

• 2000: exceeded US$ 3 billion

• Poverty loans (52%), grants (17%) & FFW (26%) and other (5%).

Challenges:Gini coefficient in rural China, 1980-2000

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

1980 1985 1990 1995 2000

Per capita income in ruralBottom 10%:180%; Top 10%:407%

-500

500

1500

2500

3500

4500

5500

6500

7500

1980 1985 1990 1995 2001

Botton 10% Top 10%

Farmers ： full time farming %

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Bottom 10% Low-middle High-middle Top 10%

Human capital or education is key for farmers to access to non-agricultural employment

Major policies affecting non-agricultural income growth

• Rural enterprise development:– Promoting “TVE” development in 1980s

• Credit and finance provided by local townships/ villages• Granted local land and low wage of rural labor

– Promoting private enterprise development in 1990s• Rural infrastructure development since late 1980s• Privatizing rural TVEs since middle 1990s• Promoting rural small town development since late 1990s

• Urban economic reform:• Reforming SOE in urban since early 1990s• Releasing migration constraints since middle 1990s

• External economy:– Attracting FDI and trade liberalization

• Pro-poor interventions• Agricultural development policies

Agri diversification -- output shares (%)

0

10

20

30

40

50

60

70

80

1978 1980 1985 1990 1995 2000

Crop

Li vestock

Fi shery

Output, input and TFP indexes: Rice (1979=100)

40

60

80

100

120

140

160

180

200

Output

Input

TFP

Major agricultural development policies

Institutional reform: land (in early 1980s) Allocated land equally to all households in the villages Land use right: 15 years in 1980-95 and 30 years in 1995-2025 After 2025: can be extended forever …

Irrigation improvement

Agricultural technology

Market reform since the late 1980s

Trade liberalization

Government rice procurement as total production

0

5

10

15

20

25

30

35

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Quota%

Rice price ratios: procurement vs market prices

0

0.2

0.4

0.6

0.8

1

1.2

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

P(Quota)/P(Market)

Implicit tax of grain (rice, wheat, maize) marketing (government procurement)

-10

0

10

20

30

40

50

60

70

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Billion yuan in 2000 price

Number of rural free market (10,000)

3. 3

4. 1

6. 1

7. 3

8. 3

9. 2

0

1

2

3

4

5

6

7

8

9

10

1978 1980 1985 1990 1995 2000

Agri commodities traded in free market (%)

8. 0 11. 016. 4

26. 1

56. 2

85

0102030405060708090

1978 1980 1985 1990 1995 2002

%

Dalian

Guangzhou (Shekou Port)

Maize price

Dalian

Fujian

Integration in Northeast China’s Markets(percent of markets that have integrated price series)

1991-92 1997-00 2001-2003

Corn 46 93 100

Soybean 56 95 95

WTO commitments: Market access

Tariff 2001 2004 Simple mean:

China: 21 ％ 17% Developing countries 20-50%

Trade weighted: China: 13 ％ SE Asia 16% Japan & Korea 53% Other Asian countries 24% EU 20%

China’s tariff: one of the lowest in the world

China’s agriculture:Tariff rate (%): 1992-2001 2004

0

5

10

15

20

25

30

35

40

45

1992 1998 2001 2004

Liberalization: Continuous of past trend, not just starting

China’s Agriculture:Nominal Protection Rates (NPR,%)

-20

0

20

40

60

80

100

78-79 80-84 85-89 90-94 95-97 98-99 2001

Rice Wheat Maize

Policy distortions: declining significantly overtime

NPRs (%):Soybean, rapeseed, sugar, and cotton in 2001

0

5

10

15

20

25

30

35

40

Soybean Rapeseed Sugar Cotton

NPRs (%):Japonica rice, Vegetable, Fruits and Meats in 2001

-30

-25

-20

-15

-10

-5

0

Japonicarice

Vegetable Fruits Beef Pork Chickenleg

Chickenbreasts

-8000

-6000

-4000

-2000

0

2000

4000

6000

85 86 87 88 89 90 91 92 93 94 95 96 97

Land i ntensi ve Labor i ntensi ve

Agricultural Trade Balance (million US$)

Concluding Remarks

Productivity growth resulted from R&D investment is essential for the agriculture to be competitive and a precondition for a successful economic transition

Agricultural diversification contributes to farmers’ income, healthy diversification needs substantial domestic market reform

Agricultural growth is important for farmers’ income growth, but substantial growth has to come from non-agri sectors

Concluding Remarks

Non-agri development needs significant public investment in rural infrastructure and education and government’s industrialization policies (i.e., migration/finance) in both rural and urban areas

Trade liberalization and FDI can facilitate the growth of and structural changes in economy

Growth is essential for poverty alleviation, but poverty alleviation and narrowing income disparity require more pro-poor interventions A challenge that China is facing