Economic Development In China Essay

Economic development and growth is sought after and important to the overall development of every country on this earth.

Economic development is said to be a long term phenomenon which studies how economic circumstances change over time and how they can be made to change. While there is no scientific formula that itself measures the development of one country, development usually coincides with the economic growth of a country. Economic growth said to be the result of the improvements a country makes on four key areas.These area’s are saving ; investments, technology and labour, resource allocation and international trade, all which are equally vital for economic development.

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China, which is considered a less developed country, has one of the world’s fastest growing economies today. China’s per capita income has gone from 478. 0 Yuan in 1980 to 5,160. 0 Yuan in 1997 (Findlay, 33).

All four key economic growth factors are relevant when talking about the changes China has made too its agricultural sector and its rural labour arrangements.This paper will discuss how china’s agricultural development and reforms have helped in the overall economic development of China. Like other lower developed countries, China’s agricultural industry has always been the engine behind its economy. Although China’s agricultural share in GDP has been declining, agricultural in China still accounts for nearly 20 percent of GDP and almost 50 percent of employment, with 70 percent of the population living in rural area’s (Findlay, 7). China’s recent rise in agricultural production is primarily due too reform’s that started to take place around the 1980’s.Prior to this time, China’s agricultural output decreased to the point where it was hurting China’s overall economic development. There were three main reasons for this decrease: a growing population; an agricultural system which was designed to supply funds for industrially development; and restricted rural-urban migration.

Between 1952 and 1957, China’s total agricultural output value increased at an average annual rate of 4. 6 percent, while its population grew at an annual rate of 2. 4 percent.This resulted in a per capita agricultural growth rate of 2. percent. During the next twenty years the agricultural growth rate stood at 2.

1 percent, slightly higher than the population growth rate of 1. 9 percent (DesForges, 99). China’s agricultural growth rate could not keep up to its growing population, so economic development suffered. During this time, the agricultural sector contributed large sums of funds to the industrial sector.

It was estimated that as much as 21. 5 percent of rural income flowed into the state treasury every year from 1952 to 1978.This resulted from inequalities between the prices of industrial products and agricultural products, a sum almost equivalent to China’s total public owned assets (DesForges, 98). Even though agricultural growth did occur during this time (see table 1), it grew too slowly and grew slower than other comparable less developed countries were growing at this time. China was investing too much into the industrial sector and too little into the agricultural sector. Before 1979, China’s investment in agriculture as a percentage of total investment in capital construction accounted for between six and eleven percent.This small investment into agriculture was made possible by keeping the standard of living of farmers at the lowest possible level. In 1978, the per-capita net income of a farming family was only 91.

64 Yuan (equivalent to $10. 29 American today), of which 72. 26 Yuan was distributed in food produce and only 19. 38 Yuan in cash. In the twenty years prior to 1978, an average farmer’s net income increased at an annual rate of only 2. 8 percent (DesForges, 100). During this period, central planning was the basis of the relationship between China’s agricultural and industrial sectors.The circulation of agricultural products and all industrial and commercial activities tool surplus funds form agriculture and relocated there funds into industry.

This loss of rural funds contributed to the poverty of the farmers, which lowered agricultural investment, which further slowed down China’s agricultural production. Another major reason for the low productivity that China saw between the 1950’s and 1970’s was due to the labour arrangements that existed at this time. Before reform began, China did not have labour markets in the conventional sense.There was absolutely no labour mobility and all wages were centrally fixed. China’s government adopted the strategy of mutually exclusive rural and urban labour markets. Rural people could not work in the cities and also were given no social security benefits (Meng, 3). The reason for this was due to the nature of china’s traditional farming techniques.

Farming was labour intensive, with small-size plots. This technique meant that that the marginal rate of technical substitution between land and labour was relatively high.Therefore, it’s possible for the agricultural sector to absorb the abundant labour supply and avoid unemployment. As a result, China’s government left rural residents out of the development of social security arrangements. Another reason why rural-urban migration was prevented also exists. China had very low grain output in the early 1950’s.

Preventing rural-urban migration had the advantage of keeping people in the country side to increase agricultural production as well as limiting the number of people in urban areas who needed agricultural products.These two reasons are both responsible for China’s highly restrictive labour mobility policies in the pre-reform era (Meng, 4). The abundance of people in rural areas due to restricted rural-urban migration reduced the average productivity of labour because the amount of arable land per farmer declined considerably (Meng, 12). Combined, a growing population, the drain of rural funds, plus the laws that restricted the flow of rural laboures to cities, resulted in the slowing down of China’s agricultural development.China’s agriculture had stagnated to the point where it was preventing the overall development of the economy. In addition, the continuing poverty of the Chinese farmers made it clear that something needed to be done and a new agricultural system need to be put into place.

Although rural-urban migration was strictly restricted up unto the late 1980’s, which will be discussed later on in this paper, all factors aforementioned led to immediate readjustments of China’s agricultural policy in 1978. A new policy had six steps that were aimed at reducing agriculture’s contributions to the state.The six steps are as follows: (1) raising the purchasing price of grain and other farm products by twenty percent for planned purchase and another twenty percent for the crops produced in excess of the amounts required (see table 3); (2) reducing the producer prices and sales prices of major agricultural used industrial products by ten to fifteen percent between 1979 and 1980; 93) reducing and exempting rural taxes — this represented a 500 million Yuan reduction in rural industrial and commercial consolidated duties and somewhere between 500 million and 600 million in agricultural taxes; (4) advocating the simultaneous development of agriculture forestry, cash crops, fisheries, animal husbandry, and by promoting side-line production; (5) importing grain, cotton and edible oil so as to alleviate the pressure on domestic supply; and (6) increasing financial subsidies for the sale of farm produce (DesForges, 101).These initial policy readjustments led to the immediate reform of the agricultural economic structure. This reform moved away from a centrally planned economy to a system which actively promoted individual farming (Mackerras, 66).In 1978 the Chinese government introduced the “household responsibility system” (HRS). This new system evolved over the nest five years and by the mid 1980’s the characteristic’s of this new system were in place. Land is owned by the villages and contracted t to peasant households for farming.

The peasants may not sell the land but have the right to sub-contract it to other or to hire labour to farm it, if the do not wish to farm themselves. In return for the land, the peasants agree to pay a tax to the government, to produce an agreed amount of particular crops to sell to the state system at plan prices, and to hand over a levy to the village to maintain collective services.Apart from the land, all other means of production can be owned and managed by the household. Households are free to plan their production as they like and to dispose of their labour and products as they want to, once they have fulfilled their contracts. They may accumulate capital and invest it as they see fit. They may also withdraw their labour entirely from agriculture and take up other activities (Findlay, 16).With these new agricultural policies in place, high-speed growth followed for China’s agriculture between 1979 and 1984.

The average annual growth rates of most farm produce registered were at an all time high (see table 2). During this time, the average annual growth rate stood at 6. 1 percent for crop farming and 9. 40 percent for the total agricultural output value. Also, China’s GNP for the same time period grew at 8. 9 percent (DesForges, 101).

China produced a total of 400 million tons of grain in 1984, which was an increase of 100 million tones over 1978. The per-capita grain output reached 395. 5 kilograms which was the highest per-capita yield ever in China (DesForges, 101).

This increase in farm produce brought growth in the cash income of the farmers. China’s total farmer’s income rose from 58 billion Yuan to 150 billion Yuan form the years 1978 to 1984. This represented a growth of 17. 2 percent (DesForges, 101).This growth contributed to the expansion of China’s domestic market, which stimulated the supply of industrial products. For example, during the 1978-84 period, the country’s total industrial output value grew at an average annual rate of 8. 88 percent.

Of the GNP’s average annual growth of nine percent, five to six percentages were directly contributed by agricultural growth (DesForges, 101). Needless to say, China’s agricultural development was the driving force for the growth of the national economy during this time. The growth rate of per-capita farm income was another characteristic of the growth China saw between the 1978-84 period.

It grew at the annual rate of 17. 7 percent (DesForges, 101).This rise can be contributed primarily to the higher prices of farm products, increased output, and the introduction of free markets.

Changing the degree of household responsibility for farmers in China was an easy way for the Chinese government to increase agricultural production and development. Output growth boomed as the rural economy “caught up” to its production possibilities. Once those productivity gains had caught up to their production possibility, the speed of agriculture growth that China had seen form 1978 to 1984 started to slow down. Further policy reforms were need in order for China’s agriculture sector to further develop. Increased procurement prices continued to take place in 1987-89 and 1992-1995.The purpose of raising procurement prices was to increase farm income and cope with high inflation rates which were taking place in the general economy (Findlay, 22).

The increased procurement prices that took place in 1992 were accompanied by an increase in government retail prices for grain in 1991 and 1992, each time by 50 percent. These increased procurement prices brought the gap between them and market prices closer (Findlay, 23). Another policy put into place by china during the 1990’s was the Governor’s responsibility system. It was first implemented in 1995 and it gives the provincial leadership ultimate responsibility for securing grain needed in each individual province (Findlay, 21).This policy mandates that provincial leaders are responsible for maintaining an overall balance of grain supply and demand within their province, stabilizing grain production area, output, and stocks, and using local reserves to regulate grain markets and stabilize grain prices. This policy made provincial leaders pay more attention to the development of agriculture (Findlay, 21).

Results of this policy include strengthened investment in agriculture and the declining trend in grain sown area (Findlay, 22). In 1993, China adopted an investment policy, which also contributed agriculture growth. This policy called the “Agricultural Law of the People’s Republic of China” states that the government’s expenditures on agriculture should increase at a rate higher than the growth rate of government revenue.Because of this policy, the government began to pay more attention to agricultural investment and management of funds for agricultural uses. The Agriculture Development Bank, which was set up in 1994, was a direct result of this policy.

Its mandated responsibility was to raise funds for loans associated with the implementation of agricultural policy (Findlay, 31). This increased investment into agriculture contributed to continued growth in the 1990’s. As mention early, restricted rural-urban migration was also stalling the development of China’s agriculture.

It wasn”t till the late 1980’s that rural-urban migration restriction started to relax.Even though the Chinese government never made formal announcements about the relaxation of these restrictions, the controls were eased gradually in that rural residents were allowed to come to the city to work in some occupations. By the end of the 1980’s and early 1990’s the number of rural migrants working in the cities started to increased dramatically. In 1988, about 25 million migrants were working in the urban areas; this figure increased to 64 million in 1994 and to 80 million in 1995, which accounted for about 18 percent of the total rural labour force or 34 percent of the total urban labour force (Meng, 144). This movement of labour had an incredible impact on the Chinese economy and contributed to rural development.The reallocation of the labour force from the countryside to the cities increased labour productivity in the rural sector, which then increased labour income in rural areas.

Also, some rural migrants would come back from the cities bringing back with them new knowledge.The knowledge gained working in urban areas would further increase rural income as well as stimulating economic growth in rural areas (Meng, 156). Agricultural growth has had a tremendous impact on the positive overall economic changes that have occurred in china in the past twenty years. Table 3 shows some of these overall economic changes. As you can see from this table, imports and exports have sky rocketed and per capita income is ten times what it was in 1980.

This table shows why China has one of the fastest growing economies toady.In conclusion, rural-urban migration, policy changes and rural economic reforms in China in the last two decades can be summarized and characterized by increased production and market liberalization of farm products. No longer is the goal of China’s agriculture to supply urban industrialization, but on market stability, farm income and sustainable rural development (Findlay, 32). China’s decision to move form central economy to an open market has had tremendous results on their overall economic development. China realizes that in order for their economy to continue to flourish, emphasis needs to be placed on continuing to develop their agricultural sector.