Rural Reforms

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 Outline
• Major rural reforms since 1978
– household responsibility system
– land reforms
– development of rural industry (TVEs)
• Rural-urban migration
• Agricultural technology change

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 Agriculture
• Rural Area ≠ Agriculture Sector
– In 2021, rural population share is 35%; but
agriculture labor force share is only 21%.
• Why? 乡事会，⼟地被村⺠所有

– Many rural people work in the urban areas without

urban Hukou (still counted as rural residents)
– Many rural people work in rural industry
not in agriculture

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The Importance of the Agriculture Sector
• The traditional sector, important for food security
• The disaster sector under central planning
• The first reform success sector
• Economic linkages to other sectors
– Releasing excess labor
– Providing savings
– Generating consumer demand

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 Evolution of the Pre-Reform
Agricultural Collectives
1979 reform start

collective farming

Source: Naughton 2018.

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 Basic Features of the Pre-Reform
Agricultural Collectives
• Property Rights: The land was pooled and worked in
common
– Land is “collectively owned”
• Management: The collective served as the basic
accounting unit
• Distribution: Net income was distributed to households
on the basis of “work points”
– Households accumulate work points over one year
– The collective after paying taxes, deducting “collective
accumulation” (retained public funds) distribute income
to households by the year end, in grain and cash
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 Advantages
• Achieves government’s goal of product mix
– Grain is priority in planning: “Take grain as the key link”
• Mobilization of resources for big projects
– Consolidation of scattered land
– Big construction projects such as irrigation system
• Local public goods
– Water supply
– Education
– Health care (“barefoot doctors”)
– Some insurance (risk pooling) functions
• Non-agricultural activities
– Rural industry (small factories and workshops)
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 Disadvantages
• Terribly inefficient in agricultural production
• Why? Incentive problems
• Features of agricultural production
– Output takes long time (usually one year) to produce
– A long sequence of tasks (sowing, weeding, watering,
harvesting, etc.)
– Important input is effort, which is hard or costly to measure
– Work point only measures time spent
– Adjustment was made according to age, gender, health,
but imperfect (manual work)

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 Outcomes
• Grain production growth between 1957 and 1978
– Annual growth rate: 2.2% (from 200mt to 300mt)
– Per capita growth rate: 0.2% (300 kg per capita)
• Non-grain agriculture products growth even lower
– Cotton growth rate: 1.5%
– Oilseed growth rate: 0.5%
– Per capita growth rates below zero
– Per capita consumption of poultry, eggs and fish also declined
• Some other social indicators improved
– Infant mortality: declined
– Life expectancy: increased
– Literacy rate: increased
– Rural infrastructure (roads, irrigation): increased
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 Agriculture Reform: Household
Responsibility System (HRS)
• Main features not priavaliazation because land still belongs to the collective
– linking the income of a household to the output of a
specific plot of land
– a household pays a fixed amount to the government
and keeps the rest
• Individual household farming
– HRS is essentially individual household farming
– But it is not a privatization of farming, in legal
sense
– Land is still owned by the village collectives
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 After reform, Farmers Worked Harder but
with Shorter Hours: Labor Days Per Hectare

Source: Naughton 2018.

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 Patterns of Agriculture Reform
• Start as an experiment by peasants themselves
• The first recorded practice: December 1978
• Xiaogang Production Brigade, Fengyang County, Anhui
Province viewed as capitalism illegal
• 20 peasants representing 20 households put their
fingerprints on an “agreement:”
– to divide the commune's land among the households
– to fulfill the procurement quota of grain to the state
– in case trouble, surviving households have obligations help
others
• Spread to other counties in Anhui
• The central government encouraged the practice only in 1982
• Spread to entire China by 1984
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 Household Responsibility System
Today
• What hasn’t changed?
– Land still owned by the village collectively
– Use right is transferable but not the ownership right
– In most cases, land can’t be used as collateral in loans
– Redistribution of land to accommodate demographic
changes
only small reform were conducted thereafter

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The Side-Effects of Agricultural Reform
• Decline of rural public services in 1980s and 1990s
– Health care: barefoot doctors disappeared,
hospital beds stagnated, village and township
paramedics declined, private facilities increased
but expensive
– 1978: 70% covered by inexpensive socialized
facilities
– 1990s: less than 1/3

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The Side-Effects of Agricultural Reform
• Decline of rural public services in 1980s and 1990s
– Elementary school: despite nationwide 9 year
compulsory education, rural education is in trouble
– Supply side: local public finance constraint
– Demand side: school drop out due to current
economic concerns

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 New Socialist Countryside
• Since 2005, Chinese government has promoted
village modernization through building the “New
Socialist Countryside”.
• China’s 2,600-year-old agricultural tax was
rescinded on Jan. 1, 2006.
reducing financial burden

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 New Socialist Countryside
新农合
• New Cooperative Medical System (NCMS) began
in 2003 and expanded nationwide in 2005.
– covers 96% of the rural population in 2022.
• Rural Pension Funds change the son preference,
thus balance the gender ratio
– covers 95% of the rural population in 2021.
• School enrollment has increased substantially.

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 Rural Land Market
urban land & Rural land

• In China, urban land is owned by the government

(state-owned). Rural land is owned by the collectives
once, the village header can be
(villagers as a whole). selected but som cancelled
• Chinese farmers do not own their land, but they do
generally have long-term contractual rights to use it.
• Land reforms since the household responsibility system
– Improve farmers’ land use rights
– Resist large-scale agriculture – keep land use right as a social
safety net
– Resist land privatization
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 Rural Land Market
• Rural Land Contracting Law in 2003
• Rural land registration reform in 2013
• Land law is only loosely implemented. Consequences
of the “fuzziness” of rural land property rights:
– First, farmers are reluctant to make long-term investments in
their contracted land, which in turn adversely affects
productivity
– Second, land expropriations deprive farmers’ rights to lease
their land to capture the market rental
• Land dispute has been the most common source of
government-farmers conflict 19
 Difference between Rural Land Use
Rights and Urban Land Use Rights
• When an urban family buys a house, it is really buying a long-
term leasehold for seventy years. An urban homeowner can sell
his property to anyone.
• A farmer has no right to sell his land to someone willing to pay a
high price in order to convert it to a more valuable use. All
he/she can do is sublease his cultivation rights.
• When the urban land value appreciates, most of the profit goes to
urban homeowners.
• But the rural residents cannot get the profit from higher value of
their land. The profit goes to the government.

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 Difference between Rural Land Use
Rights and Urban Land Use Rights
• World Bank estimated that in 1990–2010, local governments
expropriated land from farmers for a total of RMB 2 trillion less
than its market value.
• Millions of urban households were allowed to buy formerly
state-owned housing units, at far below their market value,
during a 1998–2003 housing privatization program. They were
later allowed to resell these houses at market prices. The
the people dont know the rising of housing market by that time
aggregate value of the profit was about Rmb 4.5 trillion.

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 Discussion
• Should China privatize the land?
hard to distribute the land ( but may rise the equity)
fear of huge land merge (political stability)
for fear landlord exploit peasants

⽂本

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 Development of Rural Industry
• Rural industrial firms (township and village
enterprises, or TVEs) are an important part of the
economy. 乡镇企业

• TVEs changed the landscape of China’s industry, as

well as its reform
• TVEs are uniquely Chinese
– Not in other transition and developing economies
– Not in other East Asian economies
• Emergence of industrial clusters in rural areas
• Emergence of Taobao villages

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 Outline
• Major rural reforms since 1978
– household responsibility system
– land reforms
– development of rural industry (TVEs)
• Rural-urban migration
• Agricultural technology change

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 How Large is the Migration? –
2020 Census Data
• The Chinese term 流动人口 (“floating population”) has a
number of different definitions that can produce widely
varying estimates of total numbers.
• The population census counts individuals who have been
living for at least six months in a place other than their hukou.
• Floating population increased from 211 million in 2010
population census to 376 million in 2020 population census.
– 251 million within province
– 126 million between province
 One Country, Two Citizenships
• What is the Household Registration (Hukou) system?
– Hukou system is an institutional segregation and
strict control on population migration between rural
and urban areas, and across regions
– Hukou system is not a simple residential registration.
It has a series of hidden entitlements, including
guaranteed employment, basic social security and
social welfare, subsidized public services (education,
health care, transportation, and so on), subsidized
housing

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 Why did China Establish Hukou
System?
• It was designed to implement the priority strategy of
heavy industrial development and speed up
industrialization.
• China’s economic system before reform worked as an
implicit tax on farmers, who had lower incomes
because they were compelled to sell grain to the
government at artificially low prices. The result was
that farming—and especially growing grain—became
an even lower-return occupation.

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 Why did China Establish Hukou
System?
• To keep the system functioning farmers had to
be tied to the land. Controls intensified and the
dualistic system gradually hardened into
something much more pervasive and rigid.
• Thus the roots of Hukou system lay in the
government’s strategy to extract rural
resources for industrialization.

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 A Gradual Process of Hukou System
Reform
• Policy measures were mainly taken to relax the
control of labor mobility small cities are free to land on
large city as Shanghai Beijing is restricted
– labor mobility began to be accepted, allowed, and
encouraged in the 1980s and early 1990s
– in the 1990s, there is a retrenchment in labor mobility due
to the rising urban unemployment situation
– since the 2000s, temporary or permanent permits (“Green
cards”) based on jobs and investment (housing purchase)
– since 2022, cities with populations under 3m would
gradually abolish their restrictions on obtaining local hukou
only china and north korea are the only two reserved the Hu kou
 Life of Migrants
• Rural-to-urban migration has grown rapidly in China since the
1990s, but migrants still face discrimination and limitations on
their ability to integrate into urban society.
• Most migrants remain on the fringes of urban society, sleeping
in substandard housing, typically on the outskirts of the city,
working long hours, and planning a return to the countryside.
They remain subject to discrimination and mistreatment.
• By migrating they substantially increase their income
generating potential and begin to work their way upward.
 “Left-Behind Children” (留守儿童)
• With parents gone searching for jobs many children
are left behind to be brought up by grandparents or
other relatives.
• These so called “left-behind” children number in the
tens of millions and even hundreds of million.
• Children of migrant workers who live in villages and
rarely see their parents often do poorly in school; and
have discipline and psychological problems.
Three Generations of Migrant Workers
• The first generation is already old, mostly living in
the rural area
• Second-generation people don’t want to return to the
countryside.
• Many third-generation migrant workers were born in
cities. They want to stay in large cities.
– But a large number of housing units were built in small
towns and cities
– Empty buildings in third-tier cities are very common
 Invisible Hand, Visible Foot
• The acceleration of urbanization in the future 20 years
will move almost half rural population into urban
areas.
• Internal migration in China shows that letting market
work can produce positive effects beyond our
expectation on urban development and economic
growth, but the unfinished reform also gives rise to
lots of unexamined issues that challenge the
sustainable economic growth in China.
 China Paradox - Migrant Labor
Shortage in 2010s
• First appeared in 2003, as a surprise in an economy
long characterized by large pool of surplus labor in
agriculture wage rising—due to labor shortage

• Short break in late 2008 and early 2009 as financial

crisis hit the economy
• Reappeared after Sept 2009 and became widespread
and severe after 2010 (until COVID)`.
 Explaining the Labor Shortage

• First, this is related to “Lewis Turning point”.

– Arthur Lewis describes a point at which rural surplus labor
reaches zero.
– This typically causes urban wages to rise dramatically.
– China ran out of rural surplus labor due to its demographic
structure and one-child policy since 1980.
 Explaining the Labor Shortage

• Second, there is indeed a structural problem.

– On the one hand, many of the outstanding job vacancies are
due to a lack of skilled workers as segments of China’s
export industry crawl up the value chain;
– On the other hand, some factories complain that lots of the
new-generation migrant workers aren’t interested in tough
basic jobs like construction any more.
 Explaining the Labor Shortage

• Third, the growing income at home for these farmers.

– The Chinese government has consistently put developing
agriculture and feeding the rural population as its top
priority over the years
– An incessant stream of favorable policies, such as
scrapping burdensome taxes and recent efforts to eradicate
rural poverty, have increased rural incomes
 Implications of Labor Shortage and
Wage Increase
• Urgency for maintaining competitive advantage in
manufacturing by enhancing labor productivity
• Upgrading in coastal areas, and carrying-on labor
intensive production in central and western regions
(domestic flying geese pattern)
 Outline
• Major rural reforms since 1978
– household responsibility system
– land reforms
– development of rural industry (TVEs)
• Rural-urban migration
• Agricultural technology change

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 Technology Innovation in Agriculture:
Induced Innovation Paths
• Hayami and Ruttan’s (1985) induced innovation
hypothesis: technical change is derived from the
demands of cost minimizing agents to save on relatively
scare resources and to use relatively plentiful ones.
• In the United States, with plentiful land and relatively
scarce labor, power machinery was developed to
substitute for relatively scarce labor.
• In Japan, with plentiful labor and relatively scarce land,
a package of high yielding seeds, fertilizer, and water
control was developed to substitute for relatively scarce
land.
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Technology Innovation in Agriculture:
Induced Innovation Paths

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 Agricultural Technology Change
• Expanding land through intensification of land use
– Land improvement through “terracing”: carve small flat
plots on hills
– Multi-cropping: multi-cropping index over 150
– Rotation
– Intercropping
– Relay cropping
• Changing crops
– Grain crops: Rice, wheat, maize, potatoes, etc.
– Economic or cash crops: Cotton, oil seeds, sugar crops,
tobacco, vegetables, fruits, etc.
• The Green Revolution

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 Agricultural Technology Change
• The Green Revolution crops: High yield varieties
• Three complementary ingredients to make the green revolution
work
– Improved seeds
– hybrid rice and wheat
– Research and development (R&D)
– Multi-level research facilities
– Fertilizer
– Domestic production (imported big factories and small local factories)
– Imports
– Water
– Irrigation facilities
– Rice growing region (south of Huai river) vs. wheat growing region
(north of Huai river) (Huai river is between Yangtze River and Yellow
River)
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 Yuan Longping 袁隆平(1930-2021)
• Chinese scientist – father of hybrid rice in the world
• In the early 1970s, Prof. Yuan succeeded in developing three
strains of hybrid rice, and obtained the world's first high-
yielding hybrid rice strain.
• His pioneering work has revolutionized rice cultivation in the
world and made possible the feeding of 20% of the world
population on only 7% of the world's total arable land.
• His work was also applied to other
countries, saving millions of people
from starvation.

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 Advanced Reading
• Lin, Justin Yifu (1992) “Rural Reforms and Agricultural
Growth in China,” American Economic Review, 82(1), pp.
34-51.