1 Impetus for Reform (critical juncture) Crisis of political legitimacy Communist utopia?  Economic stagnation –Per capita household expenditures increased only 2.2% –1975 per capita consumption of Grain, cooking oil, meat  lower than in 1950s –Poverty increasing Nationalism (wealthy/strong China)?  Demonstration effect/challenge of East Asian “tigers” –South Korea, Taiwan, Hong Kong, Singapore

2 Impetus for Reform Inefficiencies of planned economy –extensive development strategy  exhausted (using more and more inputs to produce output growth) 1950s each 2.5 元 in additional inputs generated a 1 元 increase in output 1970s each 5.5 元 in additional inputs generated a 1 元 increase in output Sought efficiencies of market economy –therefore, turned to intensive development strategy (using a given amounts of inputs more efficiently to produce output growth)

3 No blue print for reform “groping for stepping stones while crossing the river” 摸着石头过河 Tolerance for experimentation Experimentation as Policy Approach

4 Agricultural Reform What specific problems had emerged in the agricultural sector as of 1978?

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6 Agricultural Reform Initial policy opening –3 rd Plenum of 11 th Central Committee (Dec ’78) –marked the beginning of the “reform era”

7 Agricultural Reform 3 rd Plenum of 11 th Central Committee Primary source document –“Decision on… Accelerating Ag Development” –Re-introduce price incentives: Increase price paid by state for compulsory grain procurements from peasants by 20% Increase price paid by state for above-quota grain procurements by 50%

8 Agricultural Reform Initial policy opening –Did NOT envision de-collectivization –Addressed local crises Local crisis in Anhui (Wan Li, provincial party secretary)  Household responsibility system in farming (i.e., de- collectivization) –Evaluated experiment with household responsibility  Successful became official policy –Fully implemented by 1983 Wan Li became head of State Agriculture Commission

9 Agricultural Reform Note nature of policy process –No “blueprint” –Local experimentation allowed If considered to be successful, Then implemented on a wider scale –“Seek Truth from Facts”

10 Agricultural Reform Tremendous early success –Improve quality of life (rural and urban) –Increase rural incomes –Decrease poverty

11 Positive implications of ag reform legitimacy--improved living standards, rural incomes –rural per cap income incr’ed 70% (almost doubled in 4 yrs) –% of rural pop w/ food intake of <2200 cals/day decr’ed from 31% to 13% (cut in half)

12 Implications for transition from ag to industry (from last class) Ag reform Revealed surplus labor –For alternative employment in industry Increased household savings –For alternative investments in industry Develop rural industry  2 nd major success

13 Problems emerge after 1984 Budget burden High grain prices—burden on the state budget –state subsidized grain price to urban residents Policy reaction: slow down price increases Weak incentives for farmers Farmers shift OUT of grain production

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15 Other incentive problems for farmers Insecure land tenure Initial responsibility contracts only 1 year Later extended (according to official policy) –Extended to 3 years (early 1980s) –Extended to 15 years in some places (1984) –Extended to 30 years (1995); allow transfer of land-use rts –Declined to extend to 70 years (2008); declined to allow rural land to be used as collateral for bank loans Extensions NOT implemented in places –Why? »Cadres reallocate to reflect changes in household size (land as social safety net for farm families) »Cadres allocate land to meet grain/tax quota burden

16 Results of insecure land tenure disincentive for farmers to invest in infrastructure—irrigation long-acting fertilizer Declining growth in yields

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Policy debates over farm policy Ministry of Agriculture –Seeks economies of scale –Advocates privatization of land To allow for specialization, division of labor Other ministries –Land as social security Fear landless peasantry, political instability 20

21 Other problems in agriculture sector Tax/fee burden on peasant households To pay for local schools, roads, etc. (rural sector largely “self financing”) Led to significant rural unrest Rural/urban inequality Per capita urban incomes now 3x rural incomes Among most unequal in the world

22 Addressing problems in agriculture sector Hu Jintao/Wen Jiabao regime puts new attention on rural development Abolish rural fees (2001), ag taxes (2005) Increase fertilizer subsidies Increase intergovernmental fiscal transfers to rural areas –to finance basic infrastructure (significant increase by 2004) –to finance rural teachers’ salaries –still not enough to finance rural development »takings of farmers’ land w/out adequate compensation »a new source of revenue for local officials »a new cause for protests by rural residents “New socialist countryside” top priority of 11 th FYP ( )

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24 Ag and WTO: Crisis or Opportunity?

25 Ag and WTO: Crisis or Opportunity? Ag tariffs fell to avg 17% by 2004 –Liberalize imports of major ag commodities –Grant foreigners rts to import/distribute ag products

26 WTO—global markets Where is China’s comparative advantage?

27 WTO China NOT competitive in grain Grain: land intensive; China: land scarce Import grain China IS competitive in other ag products Comparative advantage: labor intensive products Animal husbandry—pork, chicken Horticulture—flowers, fruits, vegetables Aquaculture—fish farming Processing of ag products—processed foods