Identificación y descripción del problema

There were two principal dimensions to China’s rural reforms: (i) The introduction of the household contract responsibility system and (ii) The gradual freeing up of markets for agricultural products. The government, in the first of these, leased specific plots of land to small groups of peasants. The peasants, in return, agreed to turn over a percentage of their product to the state. At first decoilectivisation occurred more or less spontaneously, but was quickly adopted by the state and applied nationwide. Thus, what began in the late 1970s as a small-scale experiment to lift the incomes of some of the poorest regions soon spread to other parts of the country. The result was that by 1983 the people’s commune and production team, which had formerly been the hallmark of the rural economy, had largely ceased to exist (Perkins 1994 p.26).

The second component of the reforms was the liberalisation of markets for agricultural commodities and household products. There were limited markets (called rural trade fairs) prior to the reforms, but they were always closely monitored. The peasants, subsequent to the reforms, were initially only able to sell household products and secondary products

in the free market. This, however, changed in 1985 when state contracts for grains were made voluntary (see Perkins 1988 pp.607-613 and Ash 1992 pp.547-551). A national trading centre in grains has since been established in Zhengzhou and rice markets have been established in Jiujiang and Wuhu (Bell et al 1993 p. 17). The number of local markets has mushroomed since 1985. There were estimated to be approximately 72,000 local markets in 1992 (Bell et al 1993). These accounted for more than 80% of the trade in agricultural commodities (Perkins 1994).

TABLE 2.1

Various Agricultural Indicators

1978-1984 1984-1988 1988-1992 1992-1995 1996U)

Growth

Real G.D.P(a) 8.6 10.3 7.5 11.4(b,(e) 9.7(b)

Real Agricultural Growth{a) 7.3(d) 3.1<d) 4.3(d) 2 y tb )(e) _3.5(b) Agriculture as a % of Real G.D.P 31.9 29.4 26.4 22.5(c)(a) N.A Agricultural Value Added(a) 7.3(d) 3.1(d) 4.3(d) 3 y(c)(g) N.A Agricultural Output(a) Incom e 7.7 5.8 4.9 1,6<0> N.A Average Nominal Wage (Overall/35 7.9 16.2 13.3 19.8(c)lh) N.A Average Real Wage (Overall/35 5.0 5.7 2.9 ■j2(c)(h) N.A Real Average Rural Wage(a) 6.7 4.5 0.5 6.9 N.A NOTES:

(1) All statistics are expressed as percentage averages o f the end of year. (2) All statistics were calculated from data contained in China Statistical Yearbook (various years) unless otherwise indicated. (3) N.A indicates statistics were not available to the author. (4) (a) indicates statistics which are percentage growth on the preceding year, (b) These statistics are contained in Standard & Poors China Sovereigfj Report Feb. 1996. (c) These statistics are calculated from data which is contained in the Institute of International Finance People’s Republic o f China Country Report March. 1996. (d) The source o f these statistics is Perkins (1994) Table 1 and Table 3. (e) indicates that the 1995 figure used is an estimate, (f) indicates that the statistics for 1996 are forecasts, (g) indicates that the 1992-1995 average is for 1991-1994. (h) indicates that figures used for 1995 were for Jan.- Sept. (i) The rural wage is for farming, forestry animal husbandry and fishery.

Table 2.1 presents statistics on various agricultural indicators. The reforms in the initial period improved the rate of agricultural growth. From 1978 to 1984 the average growth rate for agricultural value added was five times what it had been from 1957 to 1978 (Perkins 1994 p.26). The reforms were also successful in raising rural incomes. From 1978 to 1984 the growth in the rural wage, in real terms, exceeded overall growth in the real wage. The statistics, however, after 1984 tell a different picture. The agricultural growth rate slowed in the mid to late 1980s, returning to levels consistent with its long run average. The rate of growth in rural income also stagnated following the initial burst, falling below the overall average after 1984. In three years since 1984 real rural wages have contracted - 1988, 1989 and 1993 (China Statistical Yearbook various volumes). .

Property Rights Issues

Prior to 1978 there is fairly wide consensus that property rights in the agriculture sector were “impaired” - in particular in the Great Leap Forward (1958-1960) and Cultural Revolution (1966-1976). Wills and Yang (1993a p. 56) identify five separate ways in which property rights were affected prior to the economic reforms. These are as follows. First, the mandatory procurement system forced production teams to deliver a certain fraction of their output at procurement prices that were much lower than market prices. Second, peasants access to “free markets" was severely controlled and at times prohibited. Third, the movement and occupational choices of peasants was strictly monitored. Fourth, a political work points system infringed on the right of peasants either to sell or otherwise utilise their own labour. Finally the government infringed upon individual and collective property rights by forcing large numbers of peasants to work on various construction projects without payment.

distinction between property rights relating to agriculture (activities) on one hand, and the peasants (people) on the other. The first two points which Wills & Yang mention are about property rights in agriculture. The third, fourth and fifth point are about the property rights of the peasants such as basic economic and political freedoms. The sets of issues are not comparable. The specificity of Chinese agriculture means that the overriding task is to feed the people while property rights in agriculture are of secondary importance. From this perspective if the issue is whether private or public property rights are more appropriate, there is no reason to think that the former is more natural. In fact there might be good reasons for maintaining public ownership. The property rights of the peasants is a different matter. There is less justification for restricting their freedom of movement or other freedoms like occupational choices.

The rural reforms significantly improved the economic position of the peasants. Property rights however, were still not complete even after 1978 (Nolan 1993 and Perkins 1994). The responsibility system gave households the right to use specific plots of land from the late 1970s. The households were free (with the exception of grain until 1985) to decide what crops to sow and what animals to raise. The land was leased to households initially for 5 years but extended in 1984 to 15 years for annual crops and 50 years for tree crops, but leasehold interests could not legally be bought or sold. The government only officially sanctioned trade in long-term land leases in the early 1990s and this was restricted to urban areas (Perkins 1994, p.29). Nevertheless, the "right to use” could be transferred with a certificate from the government from 1986. The illicit transfer of land (with tacit government approval) was also common from as early as 1983 (Yang, Wang & Wills 1992). The responsibility system also gave households the right to appropriate the surplus from the land.

While households are required to deliver an annual quota to the government, beyond this they can keep what they produce. This can then be self-consumed, sold to the government or sold in the free market.

What role did the introduction of “partial" property rights play in the success of the initial reforms (1978-1984)? This is a debatable point. A number of commentators have played down the role which private property rights have played in China’s economic reforms (see eg Deng 1993 and Naughton 1994b). Nolan (1993, 1994), for example, argues that China’s rural reforms have been successful in spite of the failure to clarify property rights adequately. He points out (1993 p.71) that the “economy has performed extremely well" but then goes on to state (1993 p.74): "Instead of rapidly moving towards a system in which private property became a dominant form of ownership, China in the 1980s was committed to experimentalism and gradualism in ownership reform. In al! important areas of the economy, transparent, legally protected individual property rights were the exception, not the rule. Public ownership with confused property rights was the norm". Others have emphasised that property rights are multidimensional. They consist of the right to use, the right to transfer and the right to appropriate (Cheung 1983 and Yang, Wang & Wills 1992). The argument is that each of these rights has to be considered. Thus, as pointed out above, while the right to transfer land was not legally recognised, the rights to use and appropriate the surplus did exist. The argument is that, in the early to mid-1980s, these “property rights”, together with pricing reforms such as the elimination of mandatory procurement which expanded the rights of peasants to appropriate earnings from property, were important sources of institutional change.

empirical model. The model is tested using rural data for China from 1979-1987. Yang, Wang & Wills (1992) decomposes the property rights structure into three types of rights for four kinds of property. The types of rights were the right to use, the right to transfer and the right to appropriate the surplus. The kinds of property were goods, labour, financial assets and fixed assets including land. Based on the four types of rights and four kinds of property, Yang, Wang & Wills (1992) estimate twelve subindexes of efficiency in specifying and enforcing property rights. The subindexes are then assigned weights to derive an index of transaction efficiency in specifying and enforcing property rights. This index is used to run some regressions where rural income is treated as the dependent variable, while efficiency in specifying and enforcing property rights and the division of labour are the independent variables. The empirical model "attributes all of the growth in per capita real incomes in rural China to increased efficiency in specifying and enforcing property rights and to increased division of labour, itself dependent on efficiency in specifying and enforcing property rights1’ (Wills & Yang 1993a p.57 emphasis mine). These results, however, most likely overstate the true position. The problem is that while Yang, Wang & Wills (1992) make rural incomes dependent on efficiency in specifying and enforcing property rights, the importance of property rights in relation to other potentially relevant factors such as green revolution technologies and pre-1978 accumulation (such as the wide-scale implementation of irrigation systems) in explaining changes in rural incomes is not investigated. While it is important to recognise the multi-dimensional nature of property rights, the broad definition of property rights in Yang, Wang & Wills (1992), together with the failure to include other

/ b ib l\ (lonoim.)

V s /

independent variables, implies that some of the explanatory force attributed to property rights might be due to other factors. This suggests that further empirical investigation is needed to be more definitive.

The reasons for agricultural growth slowing after 1984 are also controversial. One explanation for the slowdown in agricultural growth after 1984 stresses property rights. Feder et al (1992) argue that after instigating property reforms in the late 1970s the slowdown in growth occurred because the government did not press ahead with securing private property in the 1980s. Government control has prevented the concentration of land in private hands. The flip side of this is that significant redistribution of income occurs through public ownership. The view which articles such as Feder et a! (1992) express is debatable, but there were two problems where property rights were potentially central. First, the peasants were often not secure in government promises that they would be able to retain the land, even for the period of the leasehold. Perkins (1994) argues that this was an important reason why they were reluctant to invest in capital improvements, particularly land improvements such as irrigation systems, but Kung (1995) presents survey evidence which suggests that concerns along these lines might be overstated.12 A second possible problem is that the concerns of peasants about the state’s commitment to decollectivising agriculture manifested itself in a tendency to "mine” the land without regard to the medium to long-term fertility of the plot. Yang & Wang (1988), for example, point out that the use of chemical fertilisers increased dramatically after 1984 while the application of organic fertilisers fell significantly. The peasants’ uneasiness that the agricultural reforms could be suddenly reversed were magnified given twists and turns of previous policy. Shi (1993, p.6)

provides a practical illustration of the uncertainty. He refers to a case where a local cadre placed his portrait in a peasant’s house to indicate that the policies would only have effect as long as he was in power.

But there are also a number of reasons why agricultural growth might have slowed which are unrelated to property rights. These include an unfavourable shift in the terms of trade between agriculture and industry (see eg Watson 1994) and growing income disparity between rural and urban areas which, it is argued, impaired agricultural incentives (see eg Sachs & Woo 1994). There are also other potentially important reasons why most crop production had returned to its long-term growth rate by the end of 1984. Ash (1992), for example, points to a shortage of agricultural inputs after the initial surge in growth. Huang (1993) argues that this problem was accentuated by the preference of many farmers to invest in rural industry. Sicular (1992), on the other hand, places greater emphasis on the effects of price signals to producers which, she argues, were favourable in the initial reforms, but negative following the reassertion of government controls after 1985. All of these factors which have, to differing degrees, been important in explaining slower agricultural growth in the 1980s have a common theme. After 1984 the returns to agriculture declined relative to the alternatives for the peasants, especially T.V.Es.13

Thus, there is a clear difference of opinion. The more extreme critique of the property rights perspective argues that the success of the “partial” reforms can be attributed almost wholly to a range of disparate factors and that consequently the agricultural reforms were largely successful in spite of the property rights structure. This view, however, has its flaws to the extent that it overlooks that property rights are multi-dimensional. While somewhat impressionistic it seems that while the property rights argument places too much emphasis on the role of property rights the

extreme critique equally understates the role of property rights in the reform process. The answer lies somewhere in the middle. The implication is that most likely a range of factors, including property rights contributed to variations in agricultural performance, but this conclusion is subject to empirical verification and, thus far, the relative importance of traditional property rights explanations and other more general explanations is an empirical issue that the literature has not addressed.

2.3.2 Industrial Reforms