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close this bookCERES No. 101 - Septembe r- October 1984 (FAO Ceres, 1984, 50 p.)
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A historian examines the new economic relationships in rural China and finds...


The organization of Chinese agriculture has undergone many profound changes since 1979, of which the most significant has been the restoration of the family farm as the principal unit of agricultural production. Over 90 per cent of China's farmland has now reverted to cultivation on the family scale.

This does not, however, represent a relinquishment of the collective ideal. The farmer does not choose his main crop, nor does he sell the bulk of 'his produce on the open market. He works principally on contract to the collective (usually the production team), which is in turn responsible for the fulfillment of indicative plans conveyed to it by the local government.

The collective assigns land to the peasant household for a limited period. In the first stages of this system, the " agricultural responsability system'', contracts were given for short periods of between one and three years, but the danger that such short Ieases might discourage good husbandry was soon recognized. The contract period was accordingly increased to five years, in order to harmonize with China's five-year planning period, but has since been further increased to a minimum of 15 years.

The contract is for the production of a given quantity of grain or of another staple crop (such as cotton, oil seeds, tubers, sugar beet, or sugar cane). It does not specify inputs, but it incorporates rewards and penalties to encourage good husbandry.

The peasant is free, subject to such rewards and penalties, to cultivate as he wishes, to arrange his own crop rotations around the contracted task, and, subject to fulfillment of the contract, to use the resources at his disposal for further production on his own initiative. Production surplus to his contractual obligation is his own to dispose of in the market.

The contract also includes Ievies imposed by the collective to maintain revenues, used for infrastructural investment, economic development, and welfare. In addition, the peasant Is responsible, through the collective, for the payment of his agricultural tax.

Contracts are given not only for the production of staple arable crops but for a wide variety of other products. Indeed, one of the roots of the new system was the urgent need for agricultural diversification, and the first contracts to individuals and families were actually given for non arable production, whence they spread to the arable. Hill land and other underutilized land is also contracted out to individual peasants or families, especially for animal husbandry, fruitgrowing, and forestry, usually on heritable leases of 30 years or more. The development of crafts and workshop industries is also encouraged by contracts, and the production of services as well as goods may be contracted out.

At the same time, the private plots, production on which is subject to neither contract nor taxation, have been increased from five per cent of the arable land to 15 per cent, while in some areas Up to 20 per cent of non-arable land has been assigned on similar semis. Rural fairs, discouraged during the cultural revolution, have not only been restored but have been strongly promoted; they handle much of the marketed production of the enlarged private plots, and also much of the production of the rapidly growing individual and small-scale handicraft sector. The rural fairs have been established and are administered by the local authorities.

A contracting body.

The essence of the change, however, is that the Ieaders of the production team are no longer the direct managers of farm labour on a single, consolidated collective farm, but instead act as a contracting body to ensure the fulfilment of agricultural plans by peasant producers. Thus although cultivation is now decollectivized, the collective still has the central function of planning production. It also retains the wide range of other responsibilities which were assigned to it under the former commune system. It accumulates collective capital for investment in infrastructure: irrigation and flood control, soil improvement, and other farm capital construction. The winter construction campaigns that have been a major feature of Chinese rural development since 1958 continue, and all peasants are obliged to contribute a fixed number of days of labour each year to these campaigns: 30 days for an able-bodied male and 15 days for others. The collective also continues to raise and spend funds for the costs of primary education, for local paramedical services, and for welfare payments to those in need. It has the duty of maintaining an equitable distribution of incomes among individual families, and for this purpose it raises funds for redistributive policies via the contract system? by incorporating into the contracts payments which are akin to differential rent, while at the same time seeking to avoid anything analogous to a progressive income tax, which might penalize hard work or successful enterprise.

In one sense, the tasks of the collective leadership have actually been increased under the new system, insofar as they now have to fulfill the responsibility of developing and diversifying the village economy not by direct management but by negotiation, by taking the lead as entrepreneurs, and by participating in co-operative peasant enterprises.

China's rural institutions have been re-articulated to provide a more suitable framework for the implementation of the new policies. The commune, so long the symbol of Chinese socialism, has been steadily dismantled, and the process is expected to be complete by the end of 1984. In theory, the political responsibilities of the former commune have been transferred to revived "township" governments, while its economic responsibilities have been handed over to successor institutions which operate as autonomous enterprises responsible for their own profit and loss. In practice, the distinction between politics and economics is not so clear. Economic planning and the promotion of economic development are the responsibility of the township government, which has thus inherited the major economic tasks of the old commune. The neo-commune the "agricultural-industrial-commercial combine" as it is often called is subordinate for economic purposes to the township, as are all other local enterprises. The difference is that the township can no longer run the economy, as the old commune did, by administrative fiat which often meant the requisition or re-allocation of the resources of its subordinate brigades and teams without compensation. It must work by negotiating contracts. The neo-commune does not stand in a relationship of superiority to enterprises at the lower levels as the old commune did; it is only one albeit the most important one among local enterprises, to which it can no longer give orders and from which can no longer draw resources. The commune and brigade enterprises built up under the old system remain intact and in possession of the resources they have accumulated, but they no longer monopolize economic development, which may now be undertaken subject to approval indicated by the issue of a trading licence by individuals or by groups of peasants in co-operation, or by joint ownership and management by collective and individuals.

Such individual and co-operative enterprises are now encouraged. There are three categories of approved individual entrepreneurs: 'specialized households'', which work on contract to the collective; "households engaged in specialized tasks", which normally market their own produce and have usually developed by turning a former spare-time occupation into a full-time profession; and "key households", vvhich have undertaken to apply approved new techniques to cultivation and which work closely with agricultural extension units with which they are usually in a contractual relationship.

Very great importance has been attached to the development of cooperative local enterprises, which Deng Xiaoping anti his colleagues believe can offer a new route to a voluntary and spontaneous form of the socialization of rural production in place of orthodox collectivization. These new firms have different origins: the initiative of skilled individuals; the existence of economic opportunities which, being beyond the resources of individual families, require the pooling of the resources of a number of families; anti the transforming of technical and service centres, formerly part of the bureaucracy, into independent enterprises in association with local peasants. Joint undertakings, in which collective institutions (such as commune and brigade enterprises) or state organs (such as the local office of the foreign trade administration) combine with peasant shareholders, play a major role in this development.

Enterprises which provide services to agriculture are specially favoured. To a large extent they are a substitute for the collective or bureaucratic organs which formerly provided such services. Co-operative firms contract for mechanized cultivation, for the management of irrigation, for the provision of high-quality seeds and new breeds of livestock, and for the supply of rice seedlings, etc. Others are engaged in craft or workshop production.

A parallel decentralization of the marketing of rural produce has occurred. The Government has reduced, and has stated that it intends to continue to reduce, the number and quantity of products subject to compulsory purchase, and as far as possible to replace legally enforced procurement by price incentives. Practice varies from province to province in accordance with local conditions of supply and demand, but in general the only commodities which are now bought almost wholly by the State are grain and cotton. Co-operative trading companies are permitted and encouraged. Individual trading is allowed under licence. The barriers to direct non-official trade between one province and another have been removed, although supervision is still exercised. The peasant communities are positively encouraged to set up their own co-operative retail outlets in the nearby towns.

Back to the peasants.

One of the most striking changes has been the handing back of the rural supply and marketing co-operatives to the peasants. These were set up after the revolution, bringing together existing local traders and peasant shareholders, but very soon they became in practice virtually state trading organs. In 1977 they were actually taken over by the State. They were managed from the county level, and the original village co-operative had no power. By then, the original shares of the peasants, on which no dividend had ever been declared, accounted for only eight per cent of the assets of the co-operatives. In 1983 they were reformed. The peasants were encouraged to invest in them, and over 80 per cent did so. The representative congresses of peasant members were restored. The co-operatives were made independent and responsible for their own profit and loss. Dividends are to be paid. It is emphasized that they should serve the interests of their peasant members, and as part of a still somewhat tentative move toward reform of price policy, they are being given the right to set their own market prices within wide limits. High hopes are placed on these reformed supply and marketing co-operatives, now managed at the village level, as the most important but by no means the only, basis of a new type of cooperativization. They are encouraged to offer contracts, to supply on credit, to undertake the processing of products at village level where possible, to offer services as well as supplies, and to seek new markets for rural produce.

One must not, however, exaggerate the free-market dimension of the new rural economic organization. In 1983, individual traders accounted for only 6.5 per cent of rural trade and cooperative traders for 16.6 per cent. The rest was accounted for by state trading organs. Thus, although a salutary measure of freedom and competition has been provided, the State is still by far the peasant's most important supplier and customer and will obviously remain so for a long time.

The problems of rural supply and marketing have by no means as yet been wholly solved, partly because of the very success of the new agricultural responsibility system in stimulating rural production and especially in stimulating the increase of marketed surpluses. The existing bureaucratic and monopolistic structure of trade could not, and still cannot, cope with the flow of goods. Waste and unprofitable stockpiling threaten to destroy the new incentives for increased production. On the other hand, the rapid increase in peasant demand for agricultural inputs has taken the planners by surprise. The shortage of chemical fertilizers, insecticides, and diesel fuel is becoming very serious, and the costs of agricultural production are being forced up as official price controls break down in the face of acute scarcity.

Many shortcomings.

One may well ask why China, whose agricultural development under the former commune system had been very satisfactory indeed in comparison with the less developed countries generally, has felt it necessary to resort to such drastic changes. The answer given is that the satisfactory figures for overall growth concealed many shortcomings and did not truly express rural China's growth potential.

The present authorities in China have pointed to the shortcomings. First, the past concentration on grain production at the expense of other crops has left Chinese agriculture too little diversified. It has not been able to cope with the demands for a more varied diet that have grown with growing incomes. Grain monoculture also threatens the ecology of farming. Second, in spite of an overall annual growth rate of about 3.8 per cent per caput, grain was no more available in 1975 than in 1957, before communization. Third, although production had increased substantially, per caput peasant incomes had not increased proportionately; in some areas they had even decreased as production rose. The returns to investment in agriculture have been poor: Zhan Wu, Director of the Institute of Agricultural Economics of the Chinese Academy of Science, reported in 1980 that while from 1966 to 1977 capital invested in farm machinery had increased over eightfold and chemical fertilizer supplies had grown almost two and a half times, and while farm costs had risen 130 per cent, production had increased by only 80 per cent. Fifth, labour productivity in agriculture had not improved over the years, and while this was due largely to population growth, the collective system, under which virtually all peasants were obliged, to labour full-time on the farm, prevented their taking advantage of alternative opportunities [or employment; the development of commune and brigade industry after 1970 materially assisted in this respect, but could not altogether solve the problem of surplus rural labour, which in 1978 before the new policies began was still 'between 30 and 50 per rent of the rural population according to area. Sixth, and partly for this reason, the marketed surplus of agriculture remained low.

Three main negative characteristics were ascribed to the old system. First, he egalitarian nature of remuneration within the collective, a tendency which would continue to assert itself as long as rewards were not directly linked to final individual output, kept the incentive to work at a minimum Second, the "three-level system of ownership" (commune, brigade, and team), under which the higher level was free to draw resources from the lower levels while at the same time having no defined responsibility to these lower levels, increased the burdens of the peasants and also led to irresponsible and wasteful investment which further increased these burdens. And because political and economic leadership were in the same hands, political and economic criteria became confused. Third, the grass-roots cadres under the old system were faced with tasks which were beyond the capacity of many of them. Former peasants recruited during land reform, they often did not know how to keep accounts and knew little or nothing about modern farming methods. Meanwhile, they are growing older and there is little prospect of their being replaced by younger men with greater knowledge and newer ideas, because too few of the inadequate number of graduates in agricultural subjects are willing to work in the villages.

The new system was therefore designed to increase incentives, to break up the rigidities of the three level commune system, and as far as possible to hand responsibility for decision making back to the actual peasant producers and away from the cadres.

Division of labour

Perhaps the most important change which is now taking place in China as a result of the full application of the agricultural responsibility system is the growing division of labour in the village between those who prefer to farm and those who prefer other occupations. As growing numbers of peasants indicate their willingness to relinquish arable agriculture for other specializations, those who are most skilled in farming are being encouraged to contract for larger areas of land and even, if necessary, to employ hired labour under strictly controlled conditions. In the next few years a new pattern may well emerge in which only a minority of the rural population are engaged in arable farming, while the majority are engaged in animal husbandry and forestry, crafts and workshop industries, and the provision of services, or are employed in commune, brigade, team or cooperative industry. This has already happened in a few places, especially in the environs of cities which provide good markets. As a result, the average size of a farm in China may be expected to grow significantly in the next decade.

It is important to emphasize that while in many obvious ways that new policies represent an almost revolutionary degree of change, there is nevertheless a strong strain of continuity. The aim of the original Great Leap Forward of 1958 was to diversify rural production and to industrialize the countryside. The aim of the related commune system was to decentralize economic decision making to the villages. Behind both was the belief of Mao Zedong that in a peasant country the most powerful engine of development is the increase of peasant purchasing power rather than the increase of centralized state accumulation of capital. In the event, ironically, the commune became an arm of the State and an instrument of centralization rather than of decentralization; it carried authoritarian bureaucracy down into the village. Flow, and perhaps deservedly, it has been abolished as a rigid obstacle to the very aims it had been created to achieve. And now the freedom to organize autonomous local enterprise, which was first offered in the Great Leap Forward, but confined then to commune institutions, has been extended to the rural population as a whole.

In fairness, however, to the old collective system represented by the commune (and most Chinese commentators are fair in this respect), it achieved a tremendous development of China's rural infrastructure, without which the present return to family-scale cultivation might not have been viable.